UK economy storms ahead

In mid-morning trading the FTSE 100 was 20 points lower, despite more good news on the UK economy, says Chris Beauchamp, chief market analyst at IG.

UK economy storms ahead

The City echoed this morning to the sound of economic forecasts being revised, as the UK’s all-important services PMI came in ahead of expectations, matching the rebound posted by manufacturing last week.

The immediate fears of an economic apocalypse have receded, with activity, job growth and confidence all holding up well.

One area of concern will be an acceleration in input prices, caused by the sharp fall in the pound. It is this that will concern Mark Carney and the Bank of England, even if they have been seeking higher inflation for years now.

Sterling surged following the news, although it is only back at levels against the dollar and euro last seen in the immediate wake of the Brexit vote. The stronger pound took some of the shine off the FTSE 100, which had looked a touch overextended following Friday’s surge.

With few big corporate releases this week the market might struggle, but a weaker US dollar will help commodity prices, lifting mining shares and helping to stem downside for London’s premier index.

All eyes are on the ECB this week, as more bad news on eurozone PMIs, particularly for Germany, point towards the need for yet more intervention from the ECB.

Although the US is out of the picture for Labor Day, that has not led to a particularly quiet morning for oil. Saudi Arabia and Russia hinted at an impending statement that raises hopes of a production freeze. Eager oil traders took the chance to buy the commodity once again, with the result that more than half of the losses of the previous two weeks were recovered in the space of a few hours.

If this latest announcement proves to be a damp squib the resulting unwinding of positions could be ugly.

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